Turkey sandwich

Negative international leads see this trading week kick off on a sour note. Geo-political concerns remain a key risk after indications last week that both the US and China are preparing for further trade conflict. European weakness could drag as both a deal less Brexit and a slumping Turkish lira undermine confidence.

Fear about European exposures to a failing Turkey spooked traders and investors on Friday night. Unconfirmed reports of ECB concerns about specific bank exposures saw financial shares slump and forex traders stampede towards safe havens. Bonds and gold rallied, despite a stronger US dollar. However a rally in oil and a late session bounce in US stocks could mean tentative trading in the Asia Pacific region today.

The US reporting season is drawing to a close and the corporate picture is rosier. Bloomberg data points to a 10% gain in sales translating into a better than 25% earnings lift. The Australian reporting season heats up this week, but expectations are subdued, with a forecast overall increase in profits of between 4% and 7%. Please see the table below for key reports this week.

A higher US dollar is pipped only by the Japanese yen as the best recent currency performer. Repatriation and safer havens are the current focus, but key data this week may distract from the current concerns. China industrial production, European inflation and US retail sales this week speak to important market themes. In Australia Wednesday’s release of wages growth data has potential to shift thinking on interest rates. A negative surprise could sink the Australian dollar, where upside surprise could bring forward distant expectations of an interest rate hike.

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